Cocoa trees grow exclusively in areas that meet certain
specific conditions. The cocoa belt is an area of land around
the equator between 20 degrees latitude north and south. Most
cocoa even grows within 10 degrees of the equator.

The soil has to be fairly loose and the climate humid.
Temperatures must be between 18 and 30 degrees Celsius, with
precipitation fairly constant and minimally 1,000 mms per annum.
Cocoa trees must not receive too much sun, nor too much shade.
Cocoa cultivation is possible up to about 1,000 meters above sea
level, but most cocoa is grown below 300 meters.

The cocoa producing countries

Cocoa cultivation initially spread into the immediate
vicinity of the original habitat of the cocoa tree: from Brazil
and Mexico to Central America and the Caribbean area. In the
sixteenth century the Spanish introduced cocoa to the Indonesian
archipelago, as well as to West Africa, which now accounts for
more than half of the yearly world crop. In Southeast Asia
production has also markedly increased.

Cocoa is grown in more than thirty-five countries. The
cultivated area covers between 3.5 and 4.5 million hectares.
This area yields an annual production of approximately 2.7
million tons of cocoa beans. The most important producing
countries of cocoa beans are:

Ivory Coast

1,100,000 tons

Ghana

330,000 tons

Indonesia

300,000 tons

Nigeria

165,000 tons

Brazil

160,000 tons

Cameroon

125,000 tons

Malaysia

100,000 tons

Ecuador

100,000 tons

Dominican Rep.

55,000 tons

Colombia

45,000 tons

Mexico

40,000 tons

(crop year 1996/1997)

Climatic conditions have a strong influence on the size of
the crop.

A vulnerable crop

All the conditions mentioned earlier restrict the number of
areas where the cocoa tree thrives. In the past there have been
attempts to grow cocoa in other areas, but although initially
appearing to be successful, these attempts proved fruitless.
Frost, epidemics and insect plagues sometimes destroyed entire
plantations in a very short time. Apart from being choosy as
regards location, soil conditions and climate, the cocoa tree,
as every product of nature, is susceptible to plant diseases,
fungal infections, and infestation by insects or rodents. This
is the reason why modern plantations devote so much attention to
crop protection. An efficient modern plantation is capable of
producing around 1,500 kilos per hectare. This is more than four
times the average yield of three hundred years ago.

Three subspecies of nursery stock

As a result of difference in soil, climate and cultivation
cocoa beans possess different properties. The three main nursery
subspecies are criollo, forastero and trinitario. Each of these
subspecies has its own characteristics. Criollois lighter and
more delicate, with a fine aroma. Forastero has a high yield,
withstands differences in climate more effectively and therefore
has become the most prominent grade. Trinitario is a hybrid form
of criollo and forastero. It is wrong to say that one subspecies
of cocoa tree is superior to another. Each type has its own
chemical and physical properties. Moreover, cocoa, like coffee
for example, is far from uniform as a raw material. The
manufacturer’s art is to blend various types of cocoa beans so
as to guarantee products of a consistent high quality.

What is a good consignment of beans?

A good consignment or lot consists of fully fermented cocoa
beans of reasonably uniform size. Such lots contain few broken
beans, insects or husks. Every lot has to be checked for taste,
aroma, color, size, fat content, mould, husk percentage and
other impurities. All these factors codetermine the market value
of a consignment. It goes without saying that supply and demand
on the world market are the main pricing factors.

Supply and demand: the cocoa trade

In the producer countries local traders and central sales
organizations prepare cocoa for export. In these countries
traders, buyers, brokers and agents carry out their trade and
together form the marketing parties who agree about quality, the
time and place of delivery, and about quantities. Since supply
is extremely vulnerable to climatic changes, the price of cocoa
may rise or fall considerably during the year. Buyers – that
is, the cocoa-processing industry and its clients – naturally
wish to cover themselves against such price fluctuations. The
futures market in cocoa owes its existence to these
uncertainties.

The futures market

The world price of cocoa is determined by the futures market.
Without having to conduct personal meetings, buyers and sellers
are able to conclude contracts about future deliveries of cocoa
beans on the so called futures market. At the time of
negotiation the cocoa beans in question usually have not even
begun to grow, and so this not yet existing cocoa provides an
opportunity for a lively and exciting world-wide trade. The
contracts are registered with the Clearing House. Via this
agency a delivery commitment can be nullified by completion of a
sales contract for the same quantity and month of delivery. The
Clearing House settles the differences in price. The most
important futures markets are in London and New York. Price
trends can be closely followed anywhere in the world.

Trade as a market factor

Not infrequently cocoa beans travel half the world before
being processed. It comes as no surprise therefore that the
international cocoa trade plays an important role in bridging
differences in time, place and price. Producers like to sell
when the price is high, and buyers prefer to buy when the price
is low. Between these two there is the trader, who is prepared
to buy at high prices and to sell when prices are falling. This
may seem illogical, but by means of futures market contracts
traders cover themselves against risks. In this way they protect
themselves, their suppliers and their buyers against price
fluctuations, while making money into the bargain. Traders
provide their clients with additional services, for example, by
financing transactions in advance on behalf of their suppliers
or buyers; or by securing certain types of cocoa for their
clients, which the latter, without interventions, might have
bought under less advantageous conditions.

An important source of income

As a raw material cocoa is an important source of income for
many producer countries. However, yields can vary from year to
year. It is not surprising therefore that the governments in
these countries are closely involved in the ups and downs of
cocoa production and its export, and that international treaties
have been concluded in support of these countries, of which the
Treaty of Lomé is the best-known example. In this treaty the
European Union commits itself to refrain from levying import
duties on cocoa imports from a number of producer countries. In
the past attempts have been made to stabilize the price of cocoa
by including long-range price agreements in treaties between
producer and consumer countries. However, such treaties have
proved not to work very well in practice. In the early 1990s
some West African nations privatized their raw materials
industry, and this process is still continuing.

Transport and storage

The safeguarding of cocoa bean quality requires special
measures. The hot, humid climates of the countries of origin are
not ideal for storage and processing.

Traditionally cocoa beans were shipped in sacks made of
strong jute fabric. In the last few years bulk transports, in
which the cocoa is loosely dumped into containers, have grown in
importance. It is expected that the majority of cocoa transports
will eventually take place in this modern form, with important
consequences for the cocoa trade as well as for the loading and
unloading of ships.

An ideal location

The cocoa ports must be favorably situated vis-à-vis the
cocoa-processing industry. Amsterdam is such a location. This is
one of the reasons why the Amsterdam region is the largest cocoa
entrepôt in the world. In 1996 600,000 tons of cocoa beans were
transshipped via Amsterdam, a quarter of the world’s
production.

Warehousing companies

On arrival the warehousing companies check the loads for
quality and/or weight, by taking samples of each consignment and
separating the damaged parts. These companies also handle the
completion of documents and the settling of possible damages.
The sacks or containers are stored in warehouses or are directly
transshipped to the cocoa processing industry. Also, in the
modern silos of today cocoa blends can be produced to the
client’s specification. Transport is by road, rail or water.

Apart from the logistical side, warehousing and inspection
companies have other important functions. Their sheds also
contain, under rigorously controlled conditions, stored
consignments for the London futures market – the London
International Financial Futures and Options Exchange (LIFFE). It
is not surprising therefore that the warehousing companies are
well-known for their reliability and knowledge of the logistics,
as well as for their flexibility.
continued